What changed in this filing

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Item 1A. Risk Factors

2021-11-04 compared with 2021-08-04 · 122 added, 120 removed, 1103 unchanged (18% of the section changed)

11 unchanged sentences

our reliance on a single source or a limited group of manufacturers or suppliers;

the lack of long-term supply contracts with many of our third-party suppliers;

the possibility our manufacturing facilities could become unavailable or inoperable and other potential manufacturing problems or delays;

our reliance upon a third-party contract manufacturer for certain manufacturing and repair operations;

the need to continue to enhance our existing products and develop and market new products;

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the complex and lengthy reimbursement process we depend upon for a significant portion of our revenue;

the lack of long-term supply contracts with many of our third-party suppliers;

the possibility our manufacturing facilities could become unavailable or inoperable and other potential manufacturing problems or delays;

our reliance upon a third-party contract manufacturer for certain manufacturing and repair operations;

potential failure to maintain or obtain new private payor contracts and future reductions in reimbursement rates from private payors;

our ability to hire and retain highly qualified individuals;

our ability to manage our anticipated growth effectively;

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Because of reimbursement reductions, we expect more industry consolidation and volatility in ordering patterns based on how providers are restructuring their businesses and their access to capital.

In addition, providers may reduce or eliminate purchases from us due to our increased focus on building out a physician sales team and pursuing rentals directly, which could be in competition with our providers in the United States.

In addition, providers may reduce or eliminate purchases from us due to our increased focus on building out a prescriber sales team and pursuing rentals directly, which could be in competition with our providers in the United States.

Respiratory therapy providers compete primarily on the basis of product features and service, rather than price, since reimbursement levels are established by Medicare and Medicaid, or by the individual determinations of private payors.

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We receive a significant amount of our sales revenue from a limited number of customers, including distributors, HME providers, our private label partner, resellers, and charitable organizations.

For the three months ended June 30, 2021 and June 30, 2020, sales revenue to our top 10 customers accounted for approximately 29.8% and 28.5%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the three months ended June 30, 2021 and June 30, 2020.

For the six months ended June 30, 2021 and June 30, 2020, sales revenue to our top 10 customers accounted for approximately 30.7% and 30.1%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the six months ended June 30, 2021 and June 30, 2020.

For the three months ended September 30, 2021 and September 30, 2020, sales revenue to our top 10 customers accounted for approximately 26.9% and 32.0%, respectively, of our total revenue.

No single customer represented more than 10% of our total revenue for the three months ended September 30, 2021 and one single customer represented more than 10% of our total revenue for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and September 30, 2020, sales revenue to our top 10 customers accounted for approximately 29.2% and 29.8%, respectively, of our total revenue.

One single customer represented more than 10% of our total revenue for the nine months ended September 30, 2021 and one single customer for the nine months ended September 30, 2020.

We expect that sales to relatively few customers will continue to account for a significant percentage of our total revenue in future periods.

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Our dependence on single-source suppliers of components may expose us to several risks, including, among other things:

our suppliers or their component sub-suppliers may be unable to meet demands due to global supply chain disruptions;

we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw materials or changes in demand from us or their other customers;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 pandemic and related PHE;

we may not be able to find new or alternative components, even at elevated prices, or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable, which could lead to a production slowdown or temporary stoppage;

our suppliers may encounter financial hardships as a result of unfavorable economic and market conditions unrelated to our demand for components, which could inhibit their ability to fulfill our orders and meet our requirements;

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we may be subject to price fluctuations due to a lack of long-term supply arrangements for key components or changes in import tariffs, trade restrictions or barriers or other government actions that impact our ability to obtain such components;

we may experience delays in delivery by our suppliers due to customs clearing delays, shipping delays, scarcity of raw materials or changes in demand from us or their other customers;

our suppliers may be unable to meet demands due to the effect of exposure to infectious diseases, epidemics or other public health emergencies, including the COVID-19 pandemic and related PHE;

our suppliers or their component sub-suppliers may be unable to meet demands due to global supply chain disruptions;

we or our suppliers may lose access to critical services, tools, moldings, and components, resulting in an interruption in the manufacture, assembly and shipment of our systems;

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our suppliers may wish to discontinue supplying components or services to us.

we may not be able to find new or alternative components or reconfigure our system and manufacturing processes in a timely manner if the necessary components become unavailable.

We have experienced supply problems with one or more of our suppliers and may again experience problems in the future.

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This semiconductor chip shortage is being experienced across many industries, placing additional pressure on existing supplies.

While we have been hard at work to mitigate the impact of this supply shortage, it has and will likely have an increased negative impact our ability to manufacture products as these chips are used across all of our portable oxygen concentrators in its batteries and printed circuit boards.

We are continuing to work with our OEM partners and exploring other open-market avenues to purchase necessary semiconductor chips, but with these products facing extremely high demand, we expect continued challenges in terms of supply constraint and pricing inflation moving forward.

The acquisition costs for these chips from third parties has trended significantly higher in the third quarter of 2021 than the standard purchase price and is expected to continue to increase for any available supply if and to the extent supply continues to be limited.

As a result, we expect these higher costs will increase our cost of goods sold starting in the third quarter of 2021 and continuing until supply meets demand.

We believe based on our assessment and industry feedback that these supply shortages may continue through the second quarter of 2022.

While we expect to be supply constrained and unable to meet full customer demand for our products in the interim, we are planning on partially offsetting these rising costs by implementing price increases across our products as of September 1, 2021.

While we have taken steps to mitigate the impact of this supply shortage, it has and will likely have an increased negative impact our ability to manufacture products as these chips are used across all of our portable oxygen concentrators in its batteries and printed circuit boards.

We are continuing to work with our OEM partners and exploring other open-market avenues to purchase necessary semiconductor chips, but with these components facing extremely high demand, we expect continued challenges in terms of supply constraint and pricing inflation moving forward.

As a result, we saw these inflated costs begin to negatively impact our cost of goods sold in the third quarter of 2021, and we expect this to have an increased impact on our material costs in the fourth quarter of 2021 and into 2022 until supply and demand get closer to equilibrium.

Even though we paid significant costs in the third quarter of 2021 associated with these chips, most of these costs increased our prepaid expense and inventory given that these components were not yet sold in finished products during the period.

We believe based on our assessment and industry feedback that these supply shortages may likely continue through the second quarter of 2022.

In addition to the semiconductor chip limitations, we are continuing to see supply chain constraints for other components used in our products.

While thus far we have been able to manage through these challenges with increased inventory levels and heightened supplier management and communications, we cannot be certain we will be able to continue to do so through the remainder of the shortages and it is possible we may be required to further slowdown or temporarily halt production.

We believe this is an increased risk to the business for the rest of 2021 and into the first half of 2022.

In addition, we have seen supply chain challenges tied to the COVID-19 pandemic and related PHE in printed circuit boards, corrugated boxes, aluminum machined parts, plastic molded parts, and batteries.

While we have been able to coordinate with our suppliers to minimize disruption to our business, we may not be able to do so in the future.

We may also face similar situations in the future and we may not be able to quickly establish additional or replacement suppliers, particularly for our single source components or subassemblies, and may experience similar delays in manufacturing.

While we have been able to coordinate with our suppliers to minimize disruption to our business, we may not be able to do so in the future and may be required to further slowdown or temporarily halt production .

W e may also face similar situations in the future and we may not be able to quickly establish additional or replacement suppliers, particularly for our single source components or subassemblies, and may experience similar delays in manufacturing.

Any interruption or delay in the supply of components or subassemblies, or our inability to obtain components or subassemblies from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and cause them to cancel orders or switch to competitive products.

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In addition, we may be deemed to manufacture or contract to manufacture products that contain certain minerals that have been designated as “conflict minerals” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As a result, we may be required to perform due diligence to determine the origin of such minerals and disclose and report whether or not such minerals

originated in the Democratic Republic of the Congo or adjoining countries.

As a result, we may be required to perform due diligence to determine the origin of such minerals and disclose and report whether or not such minerals originated in the Democratic Republic of the Congo or adjoining countries.

The implementation of these requirements could adversely affect the sourcing, availability, and pricing of minerals used in the manufacture of our products.

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Product development requires significant financial, technological and other resources.

While we expended $4.1 million and $3.3 million for the three months ended June 30, 2021 and June 30, 2020, respectively, and $8.1 million and $6.9 million for the six months ended June 30, 2021 and June 30, 2020, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

While we expended $3.8 million and $3.5 million for the three months ended September 30, 2021 and September 30, 2020, respectively, and $11.9 million and $10.4 million for the nine months ended September 30, 2021 and September 30, 2020, respectively, in research and development efforts, we cannot assure that this level of investment will be sufficient to maintain a competitive advantage in product innovation, which could cause our business to suffer.

In addition, we plan to sell the TAV products acquired from the New Aera acquisition, through our domestic direct-to-consumer sales channel and our business-to-business sales channels worldwide, pending reimbursement and regulatory clearances in each market.

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failure of third parties on which we rely to meet their obligations to us, or significant disruptions in their ability to do so;

and our inability to meet our customers’ needs due to disruptions to our operations or the operations of our

contractors, suppliers, other partners or customers including disruptions to production, development, manufacturing, administrative and supply operations and arrangements.

and our inability to meet our customers’ needs due to disruptions to our operations or the operations of our contractors, suppliers, other partners or customers including disruptions to production, development, manufacturing, administrative and supply operations and arrangements.

In addition, new variants of COVID-19 could prove to be deadlier or more transmittable, or the developed vaccines may be ineffective versus these new variants, which could negatively impact our business and financial results.

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We continue to evaluate the impact COVID-19 may have on our ability to effectively conduct our business operations as planned to mitigate risk to our employees and customers while taking into account regulatory, institutional, and government guidance and policies, but there can be no assurance that we will be able to avoid part or all of any impact from the spread of COVID-19 or its consequences.

On September 9, 2021, President Biden announced the “Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors” requiring all contractors that do business with the federal government to ensure that their employees are fully vaccinated.

The Department of Labor’s Occupational Safety and Health Administration is currently drafting an emergency regulation to carry out this mandate.

It is not currently possible to predict with any certainty the exact impact the new regulation will have on us;

however, we estimate that approximately 40% of our employees are currently not vaccinated.

We believe we will be required to mandate the COVID-19 vaccination of our U.S.

This mandate, when issued, could result in employee attrition, difficulty securing future labor needs, or increased costs in the form of penalties and may have an adverse effect on our results of operations .

The COVID-19 pandemic and related PHE continues to rapidly evolve.

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We will continue to assess the potential impact of the COVID-19 pandemic and related PHE and government responses to the pandemic on our business, results of operations, financial condition and cash flows.

We do not have long-term supply contracts with many of our third-party suppliers.

We purchase components and subassemblies from third-party suppliers, including some of our single-source suppliers, through purchase orders and do not have long-term supply contracts with many of these third-party suppliers.

Many of our third-party suppliers, therefore, are not obligated to perform services or supply products to us for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order.

We do not maintain large volumes of inventory from most of these suppliers.

For example, our batteries are sourced from a single source supplier, and sub-components of the battery are also sourced from single source suppliers.

While our printed circuit boards are sourced from dual sources, the sub-components of these boards are sourced from single source suppliers.

We are experiencing limited availability of certain semiconductor chip components for our Inogen One portable oxygen concentrators in both its batteries and printed circuit boards, and we do not have long-term supply contracts that would guarantee our supply during these periods of higher demand and lower availability of these sub-components.

This has led to orders not being filled in a timely manner and is expected to lead to increased costs for components and limited supply availability.

Therefore, we were unable to fully meet customer demand for our products and expect these supply constraints to continue into the first half of 2022.

We may also be affected by other supply limitations during the COVID-19 pandemic and related PHE that could affect our ability to fulfill orders.

If we inaccurately forecast demand or fail to place orders timely enough relative to fluctuating lead time requirements for components or subassemblies, our ability to manufacture and commercialize our products could be delayed and our competitive position and reputation could be harmed.

In addition, if we fail to effectively manage our relationships with these suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or subassemblies needed for our products due to the COVID-19 pandemic and related PHE, we may be required to change suppliers or, if we are unable to find alternative suppliers in a timely manner, we may be required to further slowdown or temporarily halt production which would be time consuming and disruptive and could adversely impact our business, financial condition and results of operations.

A significant majority of our rental patients who use our product have health coverage under the Medicare program, and recently enacted and future changes in the reimbursement rates or payment methodologies under Medicare, Medicaid and other government programs have affected and could continue to materially and adversely affect our business and operating results.

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Legislation, including the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the Deficit Reduction Act of 2005, the Medicare Improvements for Patients and Providers Act of 2008, and the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, contain provisions that directly impact reimbursement for the durable medical equipment products provided by us:

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for certain durable medical equipment, including oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2008, established a competitive

bidding program for home medical equipment and implemented quality standards and accreditation requirements for durable medical equipment suppliers.

The Deficit Reduction Act of 2005 limited the total number of continuous rental months for which Medicare will pay for oxygen equipment to 36 months, after which time there is generally no additional reimbursement to the supplier (other than for periodic, in-home maintenance and servicing).

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We anticipate that the Deficit Reduction Act of 2005 oxygen payment rules will continue to negatively affect our net revenue on an ongoing basis, as each month additional customers reach the capped rental period in month thirty-seven, resulting in potentially two or more years without rental income from these customers while we continue to incur customer service and maintenance costs.

Our capped patients as a percentage of total patients on service was approximately 8.7% as of June 30, 2021 and 17.2% as of June 30, 2020.

Our capped patients as a percentage of total patients on service was approximately 8.

3 % as of September 3 0 , 202 1 and 1 3.8 % as of September 3 0 , 20 20 .

The percentage of capped patients may fluctuate over time as new patients come on service, patients come off of service before and during the capped rental period, and existing patients enter the capped rental period.

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The Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020 and extended the suspension period to March 31, 2021.

House of Representatives bill H.R.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, but would increase the fiscal year 2030 sequestration cuts.

In addition, the CARES Act established a provider relief fund of $100 billion, of which $30 billion was distributed on April 10, 2020, for Medicare providers and suppliers to prevent, prepare for, and respond to the COVID-19 PHE, and as a Medicare supplier we also received funds of $6.2 million in the second quarter of 2020.

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In addition, in the 2020 DMEPOS proposed rule, CMS stated that they solicited comments on the 2018 IFR, but have not yet responded to the comments received, and will do so in the final rule, expected to be published by May 11, 2022.

In July 2021, CMS announced a proposed change to the Home Use of Oxygen national coverage determination and proposed removing the national coverage determination for Home Oxygen Use to Treat Cluster Headaches.

If approved, this would allow the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

CMS also proposed to expand patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removing the requirements for alternative treatment measures before dispensing of oxygen therapy, and removing the limited list of conditions for which oxygen may be covered to respiratory-related diseases, and allow the physician flexibility to make that determination.

In addition, CMS proposes to define exercise more broadly to include functional performance of the patient and to give more flexibility on pulse oximetry readings to reduce racial disparities in care.

Lastly, CMS proposed to reduce provider burden by removing the oxygen certificate of medical necessity requirement.

CMS is seeking comments to their proposed decisions and will respond to public comments in the final decision memorandum.

We believe these proposed changes would both expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-making authority on proper patient care to the physicians.

However, we cannot guarantee these changes will be finalized, and do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

In September 2021, CMS published a Decision Memo which revised the Home Use of Oxygen national coverage determination and removed the national coverage determination for Home Oxygen Use to Treat Cluster Headaches.

This allows the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

CMS also expanded patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removed the requirements for alternative treatment measures before dispensing of oxygen therapy, and removed the limited list of conditions for which oxygen may be covered to respiratory-related diseases, to allow the physician flexibility to make that determination.

In addition, CMS defined exercise more broadly to include functional performance of the patient and allow more flexibility on pulse oximetry readings to account for differences in skin pigmentation.

Lastly, CMS reduced provider burden by removing the oxygen certificate of medical necessity requirement.

We believe these changes will expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-making authority on proper patient care to the physicians.

However, we do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

These legislative provisions as currently in effect have had and may continue to have a material and/or adverse effect on our business, financial condition and results of operations.

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We rely significantly on reimbursement from Medicare and private payors, including Medicare Advantage plans, Medicaid and patients for our rental revenue.

For the three months ended June 30, 2021 and June 30, 2020, approximately 82.5% and 80.0%, respectively, and approximately 83.1% and 79.2% for the six months ended June 30, 2021 and June 30, 2020, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

For the three months ended September 30, 2021 and September 30, 2020, approximately 81.6% and 82.8%, respectively, and approximately 82.6% and 80.6% for the nine months ended September 30, 2021 and September 30, 2020, respectively, of our rental revenue was derived from Medicare’s traditional fee-for-service reimbursement programs.

list price for our stationary oxygen rentals Healthcare Common Procedure Coding System (HCPCS E1390) is $260 per month and the U.S.

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however, on October 27, 2020, CMS announced that competitive bidding contracts would not be awarded for most product categories, including oxygen, due to the payment amounts not achieving the expected savings and the current COVID-19 pandemic and related PHE.

Effective April 1, 2021, rates will be adjusted to remove a percentage reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security Act.

Effective April 1, 2021, rates were adjusted to remove a percentage reduction that was put in place to meet the budget neutrality requirement previously mandated by section 1834(a)(9)(D)(ii) of the Social Security Act.

See the table below for average Medicare rates in former CBAs, using a simple average of rates in each CBA.

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There was a 60-day comment period on this proposed rule, and we expected this rule to be finalized in the first half of 2021.

This may be delayed due to the fact that on April 26, 2021, CMS published a notice stating that the Biden Administration published a “Regulatory Freeze Pending Review” memorandum advising all agencies, unless otherwise excepted by the Director of Office of Management and Budget, not to issue any rule until an appointee by the new Administration reviews and approves the rule.

This was delayed due to the fact that on April 26, 2021, CMS published a notice stating that the Biden Administration published a “Regulatory Freeze Pending Review” memorandum advising all agencies, unless otherwise excepted by the Director of Office of Management and Budget, not to issue any rule until an appointee by the new Administration reviews and approves the rule.

Pending this review and approval, CMS is continuing the rules already in effect until May 11, 2022.

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The Medicare rates announced previously were a simple average of $136.24 for HCPCS code E1390 and $44.69 for HCPCS code E1392, which were increased to $136.84 and $44.99, respectively.

See the table below for average Medicare rates in rural areas, using a simple average of rates in each state.

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In all five rounds of competitive bidding in which we have participated, we have gained access to certain CBAs and been excluded from other CBAs.

If approved, this would allow the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

Lastly, CMS proposed to reduce provider burden by removing the oxygen certificate of medical necessity requirement.

CMS is seeking comments to their proposed decisions and will respond to public comments in the final decision memorandum.

However, we cannot guarantee these changes will be finalized, and do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

Medicare revenue, including patient co-insurance and deductible obligations, represented 9.1% and 6.8% of our total revenue in the three months ended June 30, 2021 and June 30, 2020, respectively, and 9.3% and 5.6% in the six months ended June 30, 2021 and June 30, 2020, respectively.

In September 2021, CMS announced a final rule to the Home Use of Oxygen national coverage determination and a final rule to remove the national coverage determination for Home Oxygen Use to Treat Cluster Headaches.

This allows the Medicare Administrative Contractors to make coverage determinations regarding the use of home oxygen and oxygen equipment for cluster headaches.

CMS also expanded patient access to oxygen and oxygen equipment in the home by allowing oxygen use for acute or short-term needs instead of limiting coverage to chronic hypoxemia, removed the requirements for alternative treatment measures before dispensing of oxygen therapy, and removed the limited list of conditions for which oxygen may be covered to respiratory-related diseases, and allowed the physician flexibility to make that determination.

In addition, CMS defined exercise more broadly to include functional performance of the patient and to give more flexibility on pulse oximetry readings to reduce racial disparities in care.

Lastly, CMS reduced provider burden by removing the oxygen certificate of medical necessity requirement.

We believe these changes will both expand coverage for patients who would benefit from oxygen therapy, reduce administrative burdens, and give more decision-making authority on proper patient care to the physicians.

However, we do not yet have visibility on how the Medicare Administrative Contractors will change their coverage determinations.

Medicare revenue, including patient co-insurance and deductible obligations, represented 10.6% and 8.4% of our total revenue in the three months ended September 30, 2021 and September 30, 2020, respectively, and 9.7% and 6.5% in the nine months ended September 30, 2021 and September 30, 2020, respectively.

Medicare reimbursement for oxygen rental equipment is limited to a maximum of 36 months within a 60-month service period, and the equipment remains the property of the home oxygen supplier.

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The supplier may not arbitrarily issue new equipment.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of June 3 0 , 202 1 and June 3 0 , 20 20 .

Our capped patients as a percentage of total patients on service was approximately 8.7 % and 17.2% as of June 30, 2021 and June 30, 2020, respectively.

We have analyzed the potential impact to revenue associated with patients in the capped rental period and have deferred $0 associated with the capped rental period as of September 3 0 , 202 1 and September 3 0 , 20 20 .

Our capped patients as a percentage of total patients on service was approximately 8.

3 % and 13.8 % as of September 30, 2021 and September 30, 2020, respectively.

Our obligations to service Medicare patients over the rental period include supplying working equipment that meets each patient’s oxygen needs pursuant to his/her doctor’s prescription and certificate of medical necessity form and supplying all disposables required for the patient to operate the equipment, including cannulas, filters, replacement batteries, carts and carry bags, as needed.

Our obligations to service Medicare patients over the rental period include supplying working equipment that meets each patient’s oxygen needs pursuant to his/her doctor’s prescription and supplying all disposables required for the patient to operate the equipment, including cannulas, filters, replacement batteries, carts and carry bags, as needed.

If the equipment malfunctions, we must repair or replace the equipment.

We determine what equipment the patient receives, and we can deploy used assets in working order as long as the prescription requirements are met.

We must also procure a recertification of the certificate of medical necessity from the patient’s doctor to confirm the patient’s need for oxygen therapy one year after the patient first receives oxygen therapy and one year after each new 36-month reimbursement period begins.

We must also procure a renewal from the patient’s doctor to confirm the patient’s need for oxygen therapy one year after the patient first receives oxygen therapy and one year after each new 36-month reimbursement period begins.

The patient can choose to receive oxygen supplies and services from another supplier at any time, but the supplier may only transition the patient to another supplier in certain circumstances.

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In the United States, the legislative landscape, particularly as it relates to healthcare regulation and reimbursement coverage, continues to evolve.

In March 2010, the Patient Protection and Affordable Care Act was passed, which has the potential to substantially change healthcare financing by both governmental and private insurers, and significantly impact the U.S.

In March 2010, the Patient Protection and Affordable Care Act was passed, which has substantially changed healthcare financing by both governmental and private insurers, and significantly impacts the U.S.

medical device industry.

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For example, a provision in the CARES Act and the December stimulus bill temporarily paused the 2% Medicare sequestration reduction for claims dated from May 1, 2020 through December 31, 2020 and the CARES Act also extends the end date of the Medicare sequestration reduction by one year, through 2030, in order to offset the 2020 suspension.

Although the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, extended the suspension period of the sequestration to March 31, 2021, w e expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

In addition to the legislative changes discussed above, the Patient Protection and Affordable Care Act also requires healthcare providers to voluntarily report and return an identified overpayment within 60 days after identifying the overpayment.

Although the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, extended the suspension period of the sequestration to March 31, 2021, and the U.S.

House of Representatives bill H.R.

1868 was signed into law on April 14, 2021 and extended the suspension period to December 31, 2021, w e expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressures.

In addition to the legislative changes discussed above, the Patient Protection and Affordable Care Act of 2010 requires healthcare providers to voluntarily report and return an identified overpayment within 60 days after identifying the overpayment.

Failure to repay the overpayment within 60 days will result in the claim being considered a “false claim” and the healthcare provider will be subject to False Claims Act liability.

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We accept assignment of insurance benefits from customers and, in a majority of cases, invoice and collect payments directly from Medicare, private payors and Medicaid, as well as direct from patients under co-insurance provisions.

For the three months ended June 30, 2021 and June 30, 2020, approximately 11.1% and 8.5%, respectively, and for the six months ended June 30, 2021 and June 30, 2020, approximately 11.2% and 7.1%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

For the three months ended September 30, 2021 and September 30, 2020, approximately 13.0% and 10.1%, respectively, and for the nine months ended September 30, 2021 and September 30, 2020, approximately 11.8% and 8.1%, respectively, of our total revenue was derived from Medicare, private payors, Medicaid, and individual patients who directly receive reimbursement from third-party payors and this percentage could increase as a percent of total revenue if we increase net patient additions faster than our sales revenue growth.

Our financial condition and results of operations may be affected by the healthcare industry’s reimbursement process, which is complex and can involve lengthy delays between the time that a product is delivered to the consumer and the time that the reimbursement amounts are settled.

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We cannot ensure that we will be able to continue to effectively manage the process, it would adversely affect our business, financial condition and results of operations.

We do not have long-term supply contracts with many of our third-party suppliers.

We do not maintain large volumes of inventory from most of these suppliers.

For example, our batteries are sourced from a single source supplier, and sub-components of the battery are also sourced from single source suppliers.

While our printed circuit boards are sourced from dual sources, the sub-components of these boards are sourced from single source suppliers.

This has led to orders not being filled in a timely manner and is expected to lead to increased costs for components and limited supply availability.

Therefore, we were unable to meet full customer demand for our products and expect these supply constraints to continue into the first half of 2022.

We may also be affected by other supply limitations during the COVID-19 pandemic and related PHE that could impact our ability to fulfill orders.

In addition, if we fail to effectively manage our relationships with these suppliers or if our suppliers, in the near term or the long term, are not able to supply sufficient quantities of components or subassemblies needed for our products due to the COVID-19 pandemic and related PHE, we may be required to change suppliers which would be time consuming and disruptive and could adversely affect our business, financial condition and results of operations.

If our manufacturing facilities become unavailable or inoperable, we could be unable to continue manufacturing our products and, as a result, our business, financial condition and results of operations could be adversely affected until we are able to secure a new facility.

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We utilize a third-party contract manufacturer located in the Czech Republic for production of a portion of our Inogen One G3 and Inogen One G5 concentrators and for repair services for these products.

In 2018, 2019, 2020 and the six months ended June 30, 2021, our contract manufacturer produced the vast majority of the concentrators required to support our European demand and we expect this to continue in 2021.

In 2018, 2019, 2020 and the nine months ended September 30, 2021, our contract manufacturer produced the vast majority of the concentrators required to support our European demand and we expect this to continue in 2021 and 2022.

There are a number of risks associated with our dependence on a contract manufacturer, including:

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If our contract manufacturer is unable or unwilling to manufacture our products or components of our products, or if our contract manufacturer discontinues operations, we may be required to identify and qualify alternative manufacturers, which could cause us to be unable to meet our supply requirements to our customers and result in the breach of our customer agreements.

The process of

qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming, and if we are required to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our existing customer relationships.

The process of qualifying a new contract manufacturer and commencing volume production is expensive and time-consuming, and if we are required to change or qualify a new contract manufacturer, we would likely lose sales revenue and damage our existing customer relationships.

Failure to maintain or obtain new private payor contracts and future reductions in reimbursement rates from private payors could have a material adverse effect on our financial condition and results of operations.

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We must also upgrade our internal business processes and capabilities to create the scalability that a growing business demands.

Going forward, we plan to hire additional sales representatives at a more controlled pace across all three facilities to expand sales capacity, but our sales representative headcount was down significantly at year-end 2019 compared to year-end 2018 and, due to the impact of the COVID-19 pandemic and related PHE, it was also down at year-end 2020 compared to year-end 2019.

Our rate of hiring increased in the second quarter of 2021, with headcount up slightly as of June 30, 2021 compared to December 31, 2020.

In 2021, we expect hiring will continue to be challenging due to the continued impacts of the COVID-19 pandemic and related PHE, so we do not expect to increase our sales force and instead expect to offset attrition with replacement hiring.

Going forward, we plan to hire additional inside sales representatives at a more controlled pace across all three facilities to expand sales capacity, but our inside sales representative headcount was down significantly at year-end 2019 compared to year-end 2018 and, due to the impact of the COVID-19 pandemic and related PHE, it was also down at year-end 2020 compared to year-end 2019.

Headcount was up slightly as of September 30, 2021 compared to December 31, 2020.

In 2021, we expect hiring will continue to be challenging due to the continued impacts of the COVID-19 pandemic and related PHE, so we do not expect to increase our inside sales force and instead expect to offset attrition with replacement hiring.

While we believe we are making the necessary changes to improve sales management infrastructure to support sales representative training and onboarding, it will take more time to evaluate whether these changes are effective in the long term, particularly given the impact of the COVID-19 pandemic and related PHE, and to the extent they are not effective it may negatively affect our financial condition and results of operations.

In addition, we plan to hire additional sales representatives in our prescriber sales organization, of which a portion is planned through Ashfield, our contract sales organization, to enhance our go-to-market capabilities in the U.S.

While Ashfield plans to add approximately 20 dedicated sales representatives to our prescriber sales organization in early 2022, in addition to our own direct hires, the employment market is very challenging and there is no guarantee that they, or we, will be able to meet the desired timing.

Additionally, Ashfield will provide access to its best-in-class data-driven sales management disciplines, proprietary prescriber insights, and analytics to support our growth strategy and drive performance in the clinician sales channel.

While we believe that our investments in the prescriber sales organization will enhance our growth in direct-to-consumer sales and rental revenue, it will take time for these sales representatives to be fully trained and ramped up to full productivity, and it will take time for the sales tools to be implemented across our existing prescriber sales representatives.

To the extent that the sales representatives hired either through us or Ashfield, are not effective, or the number of sales representatives does not reach the number anticipated, it may negatively affect our future growth and results of operations.

In addition, our sales expansion and productivity improvements for 2021 may continue to be negatively impacted due to the COVID-19 pandemic and related PHE.

In connection with the COVID-19 pandemic and related PHE, we expect minimal sales representative headcount additions for the second half of 2021, and we expect the COVID-19 pandemic and related PHE may continue to reduce the number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices.

The reduction in nonessential travel may also continue to harm our business, particularly for our physician-based sales representatives and business-to-business partners who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe them oxygen therapy after in-office testing.

In connection with the COVID-19 pandemic and related PHE, we expect minimal sales representative headcount additions for the rest of 2021, and we expect the COVID-19 pandemic and related PHE may continue to reduce the number of oxygen therapy patients who purchase our products directly through our direct-to-consumer sales channel, and the number of sales generated from physician offices or make it more difficult to get paperwork and testing from physician offices.

The reduction in nonessential travel may also continue to harm our business, particularly for our prescriber sales representatives and business-to-business partners who rely on physician office and hospital visits to drive business, and patients who rely on physicians to prescribe them oxygen therapy after in-office testing.

We also have experienced increased demand for our products in various markets associated with rising rates of COVID-19, since physicians may prescribe supplemental oxygen as a treatment for COVID-19.

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In addition, even if we are able to meet any such increased demand, such an increase in business-to-business sales mix may negatively impact our gross margin as HME provider purchases have a significantly lower average selling price than direct-to-consumer purchases.

During 2019, we signed leases to expand our facilities located in Richardson, Texas and Goleta, California, which commenced in 2021.

During 2019, we signed leases to expand our facilities located in Plano, Texas and Goleta, California, which commenced in 2021.

Domestic expansion, combined with our use of a contract manufacturer in Europe to produce a portion of our Inogen One G3 and Inogen One G5 concentrators and perform product repairs, is expected to be sufficient to meet our manufacturing needs provided that these facilities remain operational.

However, our anticipated growth may place additional strain on our supply chain and

manufacturing facilities, resulting in an increased need for us to carefully monitor parts inventory, capable staffing and quality assurance.

However, our anticipated growth may place additional strain on our supply chain and manufacturing facilities, resulting in an increased need for us to carefully monitor parts inventory, capable staffing and quality assurance.

Any failure by us to manage the scalability of our process or other aspects of our growth effectively could have an adverse effect on our ability to achieve our development and commercialization goals and negatively affect our financial condition and results of operations.

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We made certain assumptions relating to the New Aera acquisition, which assumptions may have been inaccurate, including the failure to realize the expected benefits of the acquisition, failure to realize expected revenue, higher than expected operating costs, and general economic and business conditions that adversely affect the combined company following the acquisition.

After integration of New Aera, and partially as a result of the negative litigation outcome in our case against the Department of Health and Human Services, more fully described in Part II, Item 1 “ Litigation ” above,

we believe that our assumptions regarding New Aera will not be fully realized.

We believe that there are still many risks associated with the TAV product, including whether we will be able to successfully incorporate TAV into our existing products, what sort of competition there may be for the TAV product, and the other risks identified in this Quarterly Report on Form 10-Q.

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We sell our products to certain HME providers, distributors, private label partner and resellers on unsecured credit, with terms that vary depending upon the customer’s credit history, solvency, cash flow, credit limits and sales history, as well as prevailing terms with similarly situated customers and whether sufficient credit insurance can be obtained.

In particular, two customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $10.3 million and $7.8 million, respectively, as of June 30, 2021, and two customers each with an accounts receivable balance of $8.4 million and $7.0 million, respectively, as of December 31, 2020.

In particular, two customers each represented more than 10% of our net accounts receivable balance with accounts receivable balances of $6.7 million and $5.5 million, respectively, as of September 30, 2021, and two customers each with an accounts receivable balance of $8.4 million and $7.0 million, respectively, as of December 31, 2020.

Challenging economic conditions, including those associated with the COVID-19 pandemic and related PHE, may impair the ability of our customers to pay for products they have purchased, and as a result, our reserve for doubtful accounts could increase and, even if increased, may turn out to be insufficient.

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In addition, any disruption or delay in the shipping of our products, whether domestically or internationally, may have an adverse effect on our financial condition and results of operations.

During the six months ended June 30, 2021,and June 30, 2020, approximately 19.9% and 21.2%, respectively, of our total revenue was generated from customers located outside of the United States.

During the nine months ended September 30, 2021,and September 30, 2020, approximately 21.1% and 20.7%, respectively, of our total revenue was generated from customers located outside of the United States.

We believe that a significant percentage of our future revenue will continue to come from international sources as we expand our international operations and develop opportunities in other countries.

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We have experienced and will continue to experience fluctuations in our net income or loss as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded.

For example, for the six

months ended June 3 0 , 202 1 and June 3 0 , 2020, we experienced net foreign currency losses of less than $0.1 million and net foreign currency gains of less than $0.1 million , respectively.

For example, for the nine months ended September 30, 2021 and September 30, 2020, we experienced net foreign currency losses of $0.5 million and net foreign currency gains of $0.3 million, respectively.

Fluctuations in currency exchange rates could have an adverse impact on our financial results in the future.

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We cannot assure you that we will be able to successfully retain or develop our relationships with third-party distributors internationally.

In addition, we are subject to United States export control and economic sanctions laws relating to the sale of our products, the

violation of which could result in substantial penalties being imposed against us.

In addition, we are subject to United States export control and economic sanctions laws relating to the sale of our products, the violation of which could result in substantial penalties being imposed against us.

In particular, we have secured annual export licenses from the U.S.

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Our success depends upon the skills, experience and efforts of our senior executives and other key technical personnel, including certain members of our engineering, accounting and compliance staff as well as our sales and marketing personnel.

Our President and Chief Executive Officer, Nabil Shabshab, joined us in February 2021, our Executive Vice President, Chief Commercial Officer, George Parr, joined us in April 2021, our Executive Vice President, Chief Medical Officer, Stanislav Glezer, joined us in June 2021, and our Executive Vice President, General Counsel, Jason Somer, joined us in July 2021.

As new employees gain experience in their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of new employees with business processes, operating requirements, policies and procedures, and we may experience additional costs as new employees gain necessary experience.

Our President and Chief Executive Officer, Nabil Shabshab, joined us in February 2021, our Executive Vice President, Chief Commercial Officer, George Parr, joined us in April 2021, our Executive Vice President, Chief Technology Officer, Stanislav Glezer, joined us in June 2021, and our Executive Vice President, General Counsel, Jason Somer, joined us in July 2021.

If experienced employees leave, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of the new employees with business processes, operating requirements, policies and procedures.

It is important to our success that these key employees quickly adapt to and excel in their new roles.

If they are unable to do so, our business and financial results could be materially adversely affected.

In addition, much of our corporate expertise is concentrated in relatively few employees, the loss of which for any reason could

negatively affect our business.

In addition, much of our corporate expertise is concentrated in relatively few employees, the loss of which for any reason could negatively affect our business.

Competition for our highly skilled employees is intense and we cannot prevent the resignation of any employee.

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For example, many jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data.

These mandatory disclosures regarding a security breach could result in negative publicity to us, which may cause our customers

to lose confidence in the effectiveness of our data security measures which could adversely affect our business, financial condition and results of operations.

These mandatory disclosures regarding a security breach could result in negative publicity to us, which may cause our customers to lose confidence in the effectiveness of our data security measures which could adversely affect our business, financial condition and results of operations.

Increasing data privacy regulations could impact our business and expose us to increased liability.

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We may dedicate significant resources to responding to our customers' SARs, which could adversely affect our business, financial condition and results of operations.

Misuse of or failure to secure or properly process personal information could also result in violation of data privacy laws and regulations, proceedings against the Company by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.

Misuse of or failure to secure or properly process personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility and could have a negative impact on revenues and profits.

As the regulatory environment related to information security, data collection and use, and privacy becomes increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those requirements could continue to result in significant costs.

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Any failure to adjust spending quickly enough to compensate for a revenue shortfall could magnify the adverse impact of such revenue shortfall on our results of operations.

Our results of operations

may not meet the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly.

Our results of operations may not meet the expectations of research analysts or investors, in which case the price of our common stock could decrease significantly.

If the market opportunities for our products are smaller than we believe they are, our revenues may be adversely affected and our business may suffer.

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If we fail to obtain and maintain regulatory approval in foreign jurisdictions, our market opportunities will be limited.

Approximately 21.5% and 19.3% of our total revenue was from sales outside of the United States for the three months ended June 30, 2021 and June 30, 2020, respectively, and 19.9% and 21.2% for the six months ended June 30, 2021 and June 30, 2020, respectively.

Approximately 23.5% and 19.6% of our total revenue was from sales outside of the United States for the three months ended September 30, 2021 and September 30, 2020, respectively, and 21.1% and 20.7% for the nine months ended September 30, 2021 and September 30, 2020, respectively.

We sell our products in 59 international countries or overseas regions outside of the United States through our wholly owned subsidiary, distributors or directly to large “house” accounts.

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For example, the European Union requires that manufacturers of medical devices obtain the right to bear the “CE” conformity marking which designates compliance with existing directives and standards regulating the design, manufacture and distribution of medical devices in member countries of the European Union.

In 2017, the European Union adopted the European Medical Device Regulation (Council Regulations 2017/745) which imposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements.

The regulation has a three-year implementation period, with full application of the regulation to occur in May 2021 and will replace the existing directives on medical

devices in the European Union.

After May 2021, medical devices marketed in the European Union will require certification according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device Directive before May 2021, including our oxygen therapy products with CE Marks issued under the Medical Device Directive, may be placed on the market until May 2024.

In 2017, the European Union adopted the E uropean Medical Device Regulation (Council Regulations 2017/745) which imposes stricter requirements for the marketing and sale of medical devices, including new clinical evaluation, quality system, and post-market surveillance requirements.

The regulation ha d a three-year implementation period, with full application of the regulation occu r r ing in May 2021 and replac ing the pre- existing directives on medical devices in the European Union.

Since May 2021, medical devices marketed in the European Union will require certification according to these new requirements, except that devices with valid CE certificates, issued pursuant to the Medical Device Directive before May 2021, including our oxygen therapy products with CE Marks issued under the Medical Device Directive, may be placed on the market until May 2024.

Only medical devices that comply with certain conformity requirements of the Medical Device Directive are currently allowed to be marketed within the European Union and our products will be required to comply with the European Medical Device Regulation (MDR).

New products that fail to be certified with the MDR by May 2021 may not be marketed or sold in the European Union.

New products that fail ed to be certified with the MDR by May 2021 may not be marketed or sold in the European Union.

Similarly, existing products with CE Marks issued under the Medical Device Directive may not be placed on the market in the European Union after May 2024.

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Current law provides for a significant expansion of the government’s auditing and oversight of suppliers who care for patients covered by various government healthcare programs.

Examples of this expansion include audit programs being implemented by the Durable Medical Equipment Medicare Administrative Contractors, the Zone Program Integrity Contractors, the Recovery Audit Contractors, and the Comprehensive Error Rate Testing contractors, operating under the direction of CMS, and the various state Medicaid Fraud Control Units.

Examples of this expansion include audit programs being implemented by the Durable Medical Equipment Medicare Administrative Contractors, the Unified Program Integrity Contractors, the Recovery Audit Contractors, and the Comprehensive Error Rate Testing contractors, operating under the direction of CMS, and the various state Medicaid Fraud Control Units.

We have been informed by these auditors that healthcare providers and suppliers of certain durable medical equipment product categories are expected to experience further increased scrutiny from these audit programs.

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New health information standards, whether implemented pursuant to HIPAA, the HITECH Act, congressional action or otherwise, could have a significant effect on the manner in which we handle healthcare related data and communicate with payors, and the cost of complying with these standards could be significant.

The 2013 final HITECH omnibus rule modifies the breach reporting standard in a manner that will likely make more data security incidents qualify as reportable breaches.

The 2013 final HITECH omnibus rule modified the breach reporting standard in a manner that made more data security incidents qualify as reportable breaches.

Any liability from a failure to comply with the requirements of HIPAA or the HITECH Act could adversely affect our results of operations and financial condition.

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As a result of inconsistent application of transaction standards by third-party payors or our inability to obtain certain billing information not usually provided to us by physicians, we could face increased costs and complexity, a temporary disruption in accounts receivable and ongoing reductions in reimbursements and net revenue.

In addition, requirements for additional standard transactions, such as claims attachments or use of a national provider identifier, could prove technically difficult, time-consuming or expensive to implement, all of which could harm our business.

Changes and updates to HIPAA transaction standards could prove technically difficult, time-consuming or expensive to implement, all of which could harm our business.

If we fail to comply with state and federal fraud and abuse laws, including anti-kickback, Physician Self-Referral Law, false claims and anti-inducement laws, we could face substantial penalties and our business, results of operations and financial condition could be adversely affected.

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In addition, the Patient Protection and Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes.

Because of the breadth of these laws and the

narrowness of the safe harbors and exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

Because of the breadth of these laws and the narrowness of the safe harbors and exceptions, it is possible that some of our business activities could be subject to challenge under one or more of such laws.

Such a challenge, regardless of the outcome, could have a material adverse effect on our business, business relationships, reputation, financial condition and results of operations.

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We have taken steps to add warning labels to our products packaged in California and manufactured after August 30, 2018.

Although we cannot predict the ultimate impact of these new requirements, they could reduce overall consumption of our products or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs , all of which could adversely affect our business, financial condition and results of operations .

Although we cannot predict the ultimate impact of these requirements, they could reduce overall consumption of our products or leave consumers with the perception (whether or not valid) that our products do not meet their health and wellness needs , all of which could adversely affect our business, financial condition and results of operations .

Risks related to our intellectual property

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If our patent claims are rendered invalid or unenforceable, or narrowed in scope, the patent coverage afforded our products could be impaired, which could make our products less competitive.

As of June 30, 2021, we have twenty-eight pending U.S.

and international patent applications, forty-two issued U.S.

patents, and seventeen issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent delivery technology and our TAV product, including its proprietary nasal interface.

As of September 30, 2021, we have thirty pending U.S.

and international patent applications, forty-four issued U.S.

patents, and eighteen issued foreign patents relating to the design and construction of our oxygen concentrators, our intelligent delivery technology and our TAV product, including its proprietary nasal interface.

We cannot specify which of these patents individually or as a group will permit us to gain or maintain a competitive advantage.

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Although we have taken steps to minimize the risk of this occurring, any such failure to identify unauthorized use and otherwise adequately protect our intellectual property would adversely affect our business.

we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

Moreover, if we are required to commence litigation, whether as a plaintiff or defendant, not only will this be time-consuming, but we will also be forced to incur significant costs and divert our attention and efforts of our employees, which could, in turn, result in lower revenue and higher expenses.

We cannot provide assurance that our products or methods do not infringe or appear to not infringe the patents or other intellectual property rights of third parties and if our business is successful, the possibility may increase that others will assert infringement claims against us whether valid or frivolous.

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In addition, confidentiality agreements may be unenforceable or may not provide an adequate remedy in the event of unauthorized disclosure.

Enforcing a claim that a third party

illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable.

Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable.

Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.

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In addition, the State of California has put regulations in place to prioritize board diversity.

If we are unable to implement these requirements to find the level of talent and skills in diverse candidates within the timeframes of the regulation, we may face penalties, poor investor perception of the Company, or harm to our reputation.

Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock.

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Moreover, in the future we may implement new offerings and engage in business transactions, such as acquisitions, reorganizations or implementation of new information systems that could require us to develop and implement new controls and could negatively affect our internal control over financial reporting and result in material weaknesses.

control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected.

As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business.

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These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

As of June 30, 2021, one holder of approximately 2.1 million shares, or approximately 9.2% of our outstanding shares, has rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.

We have also registered the offer and sale of all shares of common stock that we may issue under our equity compensation plans.

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Our directors, executive officers and principal stockholders will continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including changes of control.

As of June 30, 2021, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 60.5% of the outstanding shares of our common stock.

As of September 30, 2021, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates beneficially owned or controlled approximately 50.2% of the outstanding shares of our common stock.

Accordingly, these executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates, acting as a group, have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors